Islamic finance can show the way

By Samaoen Osman Available at: http://www.businessday.co.za/articles/Content.aspx?id=145141

A bad situation may sometimes have good effects, and what is required now is to draw lessons from this global economic crisis and the subsequent losses suffered by most countries. Science maintains there is no such thing as “absolute truth”, but the current global financial crisis is evidence that there is no absolute free market. Truth is always relative, just like freedom.

It is important to look for positive points to find a way out of the financial crisis. Despite the gloom of the global economy and the pessimistic atmosphere enveloping the entire world, all countries, separately or collectively, are working hard to contain the crisis, or at least to minimise losses.

At present, there are regions in Europe and Asia, including the Gulf Arab region, emerging as hubs of huge investment, which will bring stability to the world’s financial system. This shift is important for restructuring international relations in the post- global credit crisis stage.

For example, the US and western countries are studying the salient features of Islamic banking and the Islamic finance system to ascertain how far it could be useful in fighting the ongoing global credit crisis. The Islamic finance system, which introduces greater discipline into the economy and links credit expansion to the growth of the real economy, is capable of reducing the severity and frequency of financial crises.

The second positive result of the financial crisis revolves around redrafting laws and rules that regulate global financial institutions, especially the International Monetary Fund , the World Bank and the World Trade Organisation, whose membership could not have been possible without American interference and a green light from Wall Street.

The previous rules governing economic relations were appropriate for the post-Second World War era and during the Cold War, but are no longer suitable for the globalisation agenda and the emergence of new and influential economic powers on the map of international relations.

For example, in the Persian Gulf states, foreign currency reserves reached $3-trillion at a time the US budget deficit amounted to $1-trillion. In China, foreign currency reserves reached $1,9-trillion.

In addition, progress was achieved in Europe in the light of its single currency, the euro.

The third positive point is related to the change in the world investment map and the opportunities and challenges provided by the new emerging investment hubs, which offer guarantees and opportunities for global capitalism. This will offer Gulf Co-operation Council countries such as the United Arab Emirates, Qatar, Bahrain, Kuwait, Saudi Arabia and Oman, and other Arab countries such as Libya, rare opportunities of taking advantage of the possible outcomes of this global credit crisis.

Finally, the next global financial and banking system will be strictly regulated and supervised by applying measures of control, transparency and global governance.

This could allow new institutions to emerge and take over, which lays the foundation for a new system of sharing in international finance and economic policy.

What is required now is to draw lessons from this crisis and the subsequent losses suffered globally.